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What GAO Found
The Federal Housing Finance Agency (FHFA) issued a new strategic plan for the conservatorships of Fannie Mae and Freddie Mac (the enterprises) in 2014 with reformulated goals and supporting actions that reflect a shift in priorities and changing market conditions. While the three goals in the 2014 strategic plan are broadly similar to those in the previous plan issued in 2012, FHFA changed the weight and wording of the goals (see table) to align the plan more closely with FHFA's statutory responsibilities. Specifically, compared with the 2012 plan FHFA (1) increased its emphasis on maintaining credit availability and foreclosure prevention options; (2) shifted away from shrinking the enterprises as a way to reduce taxpayer risk (focusing instead on transferring credit risk to private investors, for example); and (3) reduced the scope of the securitization infrastructure being built, such as a new technology platform for securitizing mortgages, to focus on meeting the enterprises' current needs.
Changes in the Wording of the Federal Housing Finance Agency's Goals for the Conservatorships of Fannie Mae and Freddie Mac between the 2012 and 2014 Strategic Plans
Goal
2012 plan wording
2014 plan wording
Maintain
Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages
Maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced mortgages to foster liquid, efficient, competitive, and resilient national housing finance markets
Contract/Reduce
Gradually contract the enterprises' dominant presence in the marketplace while simplifying and shrinking their operations
Reduce taxpayer risk through increasing the role of private capital in the mortgage market
Build
Build a new infrastructure for the secondary mortgage market
Build a new single-family securitization infrastructure for use by the enterprises and adaptable for use by other participants in the secondary market in the future
Source: GAO analysis of Federal Housing Finance Agency 2012 and 2014 strategic plans for the conservatorships. | GAO-17-92
In the absence of congressional direction, FHFA's shift in priorities has altered market participants' perceptions and expectations about the enterprises' ongoing role and added to uncertainty about the future structure of the housing finance system. In particular, FHFA halted several actions aimed at reducing the scope of enterprise activities and is seeking to maintain the enterprises in their current state. However, other actions (such as reducing their capital bases to $0 by January 2018) are written into agreements for capital support with the Department of the Treasury (Treasury) and continue to be implemented. In addition, the change in scope for the technology platform for securitization puts less emphasis on reducing barriers facing private entities than previously envisioned, and new initiatives to expand mortgage availability could crowd out market participants. Furthermore, some actions, such as transferring credit risk to private investors, could decrease the likelihood of drawing on Treasury's funding commitment, but others, such as reducing minimum down payments, could increase it. GAO has identified setting clear objectives as a key principle for providing government assistance to private market participants. Because Congress has not established objectives for the future of the enterprises after conservatorships or the federal role in housing finance, FHFA's ability to shift priorities may continue to contribute to market uncertainty.
Why GAO Did This Study
In 2008, FHFA used its authority under the Housing and Economic Recovery Act to place Fannie Mae and Freddie Mac into conservatorships out of concern that their deteriorating financial condition threatened the stability of the financial market. Eight years later, the enterprises remain in conservatorships. However, FHFA says the conservatorships were not intended to be permanent. FHFA has issued two strategic plans for its conservatorship of the enterprises, one in 2012 and another in 2014.
GAO was asked to examine FHFA's actions as conservator. This report addresses (1) the extent to which FHFA's goals for the conservatorships have changed and (2) the implications of FHFA's actions for the future of the enterprises and the broader secondary mortgage market.
GAO analyzed and reviewed FHFA's actions as conservator and supporting documents; legislative proposals for housing finance reform; the enterprises' senior preferred stock agreements with Treasury; and GAO, Congressional Budget Office, and FHFA inspector general reports. GAO also interviewed FHFA and Treasury officials and industry stakeholders.
What GAO Recommends
Congress should consider legislation that would establish clear objectives and a transition plan to a reformed housing finance system that enables the enterprises to exit conservatorship. FHFA agreed with our overall findings.
For more information, contact Lawrance L. Evans, Jr. at (202) 512-8678 or evansl@gao.gov.Thu, 17 Nov 2016 12:00:00 -0500Letter ReportFinancial Audit: Federal Housing Finance Agency's Fiscal Years 2016 and 2015 Financial Statements, November 15, 2016http://www.gao.gov/products/GAO-17-139R
What GAO Found
GAO found (1) the Federal Housing Finance Agency's (FHFA) financial statements as of and for the fiscal years ended September 30, 2016, and 2015, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) FHFA maintained, in all material respects, effective internal control over financial reporting as of September 30, 2016; and (3) no reportable noncompliance for fiscal year 2016 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested. In its written comments, FHFA stated that it was pleased to accept the audit conclusions and that it will continue to work to enhance its internal control and ensure the reliability of its financial reporting, the soundness of operations, and public confidence in its mission.
Why GAO Did This Study
The Housing and Economic Recovery Act of 2008 established FHFA as an independent agency empowered with supervisory and regulatory oversight of the housing-related government-sponsored enterprises: the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the 11 Federal Home Loan Banks, and the Office of Finance. This act requires FHFA to annually prepare financial statements and requires GAO to audit the agency's financial statements. In accordance with the act, GAO audited FHFA's financial statements.
For more information, contact J. Lawrence Malenich at (202) 512-3406 or malenichj@gao.govTue, 15 Nov 2016 12:00:00 -0500CorrespondenceFinancial Institutions: Penalty and Settlement Payments for Mortgage-Related Violations in Selected Cases, November 10, 2016http://www.gao.gov/products/GAO-17-11R
What GAO Found
GAO reviewed nine selected cases involving alleged mortgage-related violations—violations related to mortgage origination, mortgage servicing, and the packaging or sale of residential mortgage-backed securities—finalized from February 2012 through April 2016. GAO found that the eight federal agencies that played key roles in these cases—the Department of Justice, Department of Housing and Urban Development; Bureau of Consumer Financial Protection, also known as the Consumer Financial Protection Bureau; Securities and Exchange Commission, and other agencies —all had their own processes for collecting payments made by financial institutions as a result of civil money penalties or settlement agreements. The funds collected by these agencies in the nine selected cases were eventually deposited into various accounts, depending on the agencies involved, the laws governing where agencies may deposit funds, and the terms of the specific settlement agreements. In the nine cases GAO reviewed, financial institutions were required to pay a total of almost $25 billion in penalties, settlement amounts, and consumer relief. Of the $25 billion, the eight agencies in the nine selected cases were responsible for collecting about half. These funds were largely used to support general government services, provide redress to affected harmed consumers, aid in civil debt collection activities, or provide damages to failed credit unions and banks.
Why GAO Did This Study
Over the last few years, federal agencies have collected billions of dollars in settlement payments and penalties from financial institutions for violations alleged to have been committed during the mortgage origination process, the servicing of mortgages, and in the packaging and sale of residential mortgage-backed securities. Depending on the nature and severity of the alleged violation, federal agencies—including the Department of Justice; Department of Housing and Urban Development; Bureau of Consumer Financial Protection, also known as the Consumer Financial Protection Bureau; Securities and Exchange Commission, and other agencies—may take various actions against financial institutions for the mortgage-related violations they commit. Specifically, these agencies can take enforcement actions, reach settlement agreements, and assess civil money penalties, among other actions. GAO was to review the collection and use of funds that federal agencies have collected from financial institutions for different types of violations. This is GAO’s second report in response to this request. In GAO’s first report issued in March 2016, GAO reviewed the amounts federal agencies collected from financial institutions for violations of Bank Secrecy Act, Foreign Corrupt Practices Act, and sanctions requirements (see GAO-16-297). In this report, GAO reviewed the collection and use of funds from financial institutions for mortgage-related violations. This report describes (1) the process for collecting these funds and the purposes for which they are used, and (2) the penalties and settlement amounts financial institutions have paid to the federal government for selected cases involving alleged mortgage-related violations. To conduct this work, GAO selected a sample of cases where federal agencies either reached settlements with or assessed penalties against financial institutions for mortgage-related violations. For the selected cases, GAO reviewed relevant documentation such as agency enforcement orders, payments agencies collected, and documentation on authorized or allowed expenditures from the accounts into which the collected payments were deposited.
For more information, contact Lawrance Evans, Jr. at 202-512-8678 or evansl@gao.gov or Diana C. Maurer at 202-512-9627 or maurerd@gao.gov.Thu, 10 Nov 2016 12:00:00 -0500CorrespondenceHome Mortgage Guarantees: Issues to Consider in Evaluating Opportunities to Consolidate Two Overlapping Single-Family Programs, September 29, 2016http://www.gao.gov/products/GAO-16-801
What GAO Found
GAO's comparison of single-family home purchase loans guaranteed by the Rural Housing Service (RHS) and the Federal Housing Administration (FHA) in fiscal years 2010–2014 identified significant overlap and some differences in the borrowers served. Within statutorily defined rural areas (RHS-eligible areas):
Both agencies served large numbers of rural borrowers, but FHA served over 35 percent more than RHS, while RHS reached a greater number of borrowers in the more rural parts of RHS-eligible areas.
Most of the borrowers served by each agency had annual incomes below $60,000. But consistent with RHS's statutory income limits, the median borrower income for RHS ($44,000) was well below that for FHA ($57,000).
RHS and FHA borrowers had similar credit scores (around 685 at the median) and ratios of housing expenses to monthly gross income (23–24 percent at the median).
Borrowers in both programs had high loan-to-value (LTV) ratios (loan amount divided by home value). But RHS's no-down-payment requirement and FHA's statutorily required 3.5 percent down payment resulted in higher LTV ratios for RHS than for FHA (medians of 101 and 96.5 percent, respectively).
Significant portions of RHS and FHA borrowers could have met the criteria of the other program. For example, at least 36 percent of RHS borrowers could have met FHA's criteria, including the 3.5 percent minimum down payment.
In RHS-eligible areas, RHS loans guaranteed in fiscal years 2010–2011 performed worse than corresponding FHA loans after 3 years. Specifically, for borrowers whose incomes fell within RHS limits, RHS's 3-year troubled loan rate (the share of loans 90 or more days late, in foreclosure, or terminated with a claim) was 7 percent, compared with 6 percent for FHA. GAO estimated that RHS's loans would be expected to perform worse than FHA's due partly to RHS borrowers' higher LTV ratios.
Borrower costs—at loan closing and paid monthly—were lower for RHS loans than for FHA loans. Due to differences in down-payment requirements, a borrower purchasing a $125,000 home in 2014 would have paid $4,375 more in up-front costs with an FHA loan than with an RHS loan. Also, FHA (which must maintain a capital reserve) charged borrowers a higher annual guarantee fee than RHS, which has no capital requirement. Due largely to the difference in this fee (charged monthly), a borrower's initial monthly payments would have been about 7 percent lower with an RHS loan (assuming a 3.75 percent interest rate).
GAO's analysis provides additional evidence of how the programs overlap in terms of income, location, and borrower qualifications. It also highlights issues for RHS and FHA to consider in evaluating opportunities to consolidate these programs, as GAO recommended in 2012. Specifically, differences in the performance and borrower costs of RHS and FHA loans underscore important tradeoffs. Higher LTV ratios and lower guarantee fees help make mortgages more affordable. However, these features also may elevate financial risks to the federal government from increased loan defaults and less revenue to cover unanticipated costs. Agency consideration of these issues would aid congressional decision-making about potential program consolidation.
Why GAO Did This Study
RHS and FHA help borrowers finance homes by guaranteeing single-family mortgage loans made by private lenders, and both operate in rural areas. However, eligibility for RHS guarantees is restricted to RHS-eligible areas and to low- and moderate-income households. A prior GAO report (GAO-12-554) found overlap in the products offered, borrower income levels, and geographic areas served by the two guarantee programs and recommended that RHS and FHA evaluate and report on opportunities for consolidating similar housing programs.
GAO was asked to expand on the analysis in its 2012 report. This report compares the characteristics, performance, and borrower costs of RHS- and FHA-guaranteed loans in RHS-eligible areas.
GAO analyzed RHS and FHA data for home purchase loans guaranteed in fiscal years 2010–2014 (which allowed for analysis of loan performance over multiple years). GAO also interviewed RHS and FHA officials, eight lenders (selected to capture variation in rural areas served, origination volume, and mix of RHS and FHA business), and industry associations.
What GAO Recommends
GAO makes no new recommendations in this report but maintains that RHS and FHA should evaluate and report on opportunities to consolidate their similar housing programs.
For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.Mon, 31 Oct 2016 13:00:00 -0400Letter ReportElderly Housing: HUD Should Do More to Oversee Efforts to Link Residents to Services, September 01, 2016http://www.gao.gov/products/GAO-16-758
What GAO Found
While limitations in the Department of Housing and Urban Development's (HUD) data make an accurate assessment difficult, GAO estimates that roughly half of the 7,229 Section 202 Supportive Housing for the Elderly (Section 202) properties have HUD-funded service coordinators—staff who link residents to supportive services such as transportation assistance or meals. HUD's data indicate that 38 percent of Section 202 properties have a HUD-funded service coordinator, but these data likely underestimate the true number. GAO surveyed a generalizable sample of Section 202 properties not identifiable in HUD's data as having a service coordinator and, on this basis, estimates that an additional 12 percent of Section 202 properties actually had one—bringing the actual total of Section 202 properties with service coordinators to about 50 percent. Federal internal control standards note that it is important for management to obtain relevant data from reliable sources. Properties with service coordinators are subject to additional monitoring, but without accurate information, HUD risks not taking steps to monitor Section 202 properties with service coordinators to help ensure they are connecting residents to supportive services.
Properties without service coordinators connect residents to services in a variety of ways—for example, property managers may serve this function themselves, or they may utilize other local organizations. Several stakeholders told GAO that property managers are well-positioned to know their residents, and have some insight into their needs. Others noted that property managers generally lack the time and expertise to effectively manage this responsibility, and that the manager's role can conflict with that of the service coordinator. Through GAO's survey and site visits, managers of Section 202 properties without service coordinators cited a variety of reasons for not employing them, including lack of funding and having too few units to justify hiring someone to focus on supportive services for the elderly residents.
HUD requires its staff to monitor Section 202 properties' adherence to program requirements. However, HUD lacks written policies and procedures that describe how its staff should monitor the requirement for Section 202 property managers to coordinate the provision of supportive services. Available guidance describes general monitoring procedures for multifamily properties but does not address Section 202 specifically. HUD officials told GAO they plan to develop guidance on monitoring Section 202 properties with service coordinator grants by December 2016. Federal internal control standards note the importance of documenting responsibilities through policies. Without written policies and procedures, HUD cannot be assured that elderly residents are receiving assistance obtaining services. In addition, HUD collects performance data, such as the number of services provided, from Section 202 properties that have service coordinators but does not have policies or procedures in place to verify the accuracy of the data or for analyzing the data collected. Federal internal control standards also note the importance of evaluating data for reliability and processing data into quality information to evaluate performance. Until HUD takes steps to assess service coordinator performance data for reliability and analyze the data reported, its ability to use that information to monitor whether service coordinators are performing effectively and helping to fulfill the goals of the Section 202 program will likely be limited.
Why GAO Did This Study
The U.S. population of persons age 65 and older is expected to grow to 73 million by 2030. With age, people are increasingly likely to face physical and cognitive limitations. HUD's Section 202 program funds supportive rental housing for very low-income elderly households. Section 202 property owners are expected to coordinate the provision of services to help residents live independently and age in place.
GAO was asked to review how Section 202 properties connect residents to services and HUD's related monitoring efforts. This report examines (1) the extent to which Section 202 properties have service coordinators, (2) how properties without coordinators connect residents with services and why they may not use coordinators and (3) HUD's monitoring of Section 202 properties' efforts to connect residents with supportive services, among other objectives. GAO analyzed HUD's fiscal year 2014 data (the latest available) on Section 202 properties and service coordinators; surveyed a generalizable sample of Section 202 properties not identifiable in HUD data as having service coordinators; reviewed monitoring policies, program descriptions, and agency notices; and interviewed HUD officials from each of HUD's five Multifamily Housing regions and stakeholders.
What GAO Recommends
GAO recommends that HUD (1) improve the accuracy of its data on Section 202 properties with service coordinators, (2) develop written guidance on assessing compliance with supportive services requirements, and (3) develop procedures for verifying and analyzing performance data. HUD concurred with GAO's recommendations.
For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.Mon, 03 Oct 2016 13:00:00 -0400Letter ReportCommunity Development Block Grants: Sources of Data on Community Income Are Limited, September 06, 2016http://www.gao.gov/products/GAO-16-734
What GAO Found
The Department of Housing and Urban Development's (HUD) and states' primary method for communities to demonstrate eligibility when they disagree with HUD's eligibility determination is to allow communities to conduct their own local income surveys to show that they meet the Community Development Block Grant (CDBG) income threshold. HUD instructs small communities, known as nonentitlement communities, to use data based on the Census Bureau's American Community Survey (ACS) to determine whether at least 51 percent of residents in their proposed project service areas are low- and moderate-income persons and are therefore eligible for CDBG funds. However, communities may disagree with their eligibility determination based on ACS data, or they may be unable to use this method because the project's service area is larger or smaller than the census boundaries. In these cases, HUD and states allow communities to conduct their own local income surveys to demonstrate eligibility. State officials GAO interviewed said it is common for nonentitlement communities to use local income surveys as an alternative to HUD's ACS-based data, and HUD and states provide guidance on conducting these surveys. However, stakeholders cited costs and other challenges nonentitlement communities face in conducting local income surveys, including resource constraints, administrative burdens, and difficulty in obtaining a sufficient number of survey responses. Other than local income surveys, alternative methods for showing eligibility for CDBG funds are limited. For example, communities may qualify by funding activities that serve populations HUD presumes to be low- and-moderate income, such as the elderly or homeless.
Stakeholders GAO interviewed cited challenges associated with measuring income and limitations associated with alternative data sources that might be used to demonstrate that communities meet the low- and moderate-income requirements. For example, stakeholders cited general challenges associated with measuring income and poverty, such as fluctuations in an individual's or community's income over a year. Some stakeholders cited alternative sources of income information that have not been used by communities that disagree with census data to determine CDBG eligibility. However, they noted that these sources would likely have one or more of the following limitations:
does not fully measure a community's income;
is not easily accessible by communities;
is not available at small geographic levels; or
is not more precise than ACS.
For example, some sources of income data, such as income tax data, may have limited public availability—limiting their accessibility by communities—and income tax data would not include low-income earners who are not required to file tax returns. Other sources, such as the Supplemental Nutrition Assistance Program and other income-based programs, would not provide data at a small enough geographic level to be useful for this purpose. The Census Bureau is in the process of exploring ways to use external data sources, such as Social Security Administration and Internal Revenue Service data, to supplement ACS to improve the data and expects to make recommendations by March 2017.
Why GAO Did This Study
Administered by HUD, the CDBG program provides funding for housing, community, and economic development programs. After set asides, HUD must allocate 70 percent of funds to cities and urban counties, known as entitlement communities, and 30 percent to states for distribution to eligible nonentitlement communities. In fiscal year 2015, Congress appropriated $3 billion for the CDBG program, of which HUD allocated $900 million to states. Seventy percent of CDBG funds must principally benefit low- and moderate-income persons, and Census Bureau data are used for this determination. In 2014, HUD transitioned from using decennial census long form income data (which are no longer collected) to ACS income data, which HUD uses to update its income data every 5 years.
GAO was asked to review HUD's policies related to communities that disagree with their CDBG eligibility determination based on HUD's use of ACS data. This report examines (1) HUD's and states' eligibility policies and (2) potential alternative data sources. GAO interviewed CDBG administrators from 8 states and from nonentitlement communities in each of these states, all of which were selected based on available data and CDBG stakeholders' recommendations; spoke with other CDBG stakeholders; and reviewed CDBG guidance from 49 states and Puerto Rico. GAO also analyzed how use of ACS data can affect community eligibility.
GAO makes no recommendations in this report. HUD and the Department of Commerce provided technical comments.
For more information, contact William Shear at (202) 512-8678 or shearw@gao.gov.Tue, 06 Sep 2016 13:00:00 -0400Letter ReportDepartment of Housing and Urban Development: Actions Needed to Incorporate Key Practices into Management Functions and Program Oversight, July 20, 2016http://www.gao.gov/products/GAO-16-497
What GAO Found
The Department of Housing and Urban Development (HUD) has struggled to resolve persistent management challenges, in part because it has not consistently incorporated requirements and key practices identified by GAO to help ensure effective management into its operations. In addition, HUD's past remedial actions were not always effective because they were not sustained. Turnover among senior leadership, shifting priorities, and resource constraints have contributed to HUD's difficulties in implementing needed changes. As a result, GAO and others continue to find deficiencies in numerous aspects of HUD's operations. Sustained focus on integrating requirements and key practices into agency management could enhance HUD's ability to more effectively accomplish its mission.
HUD has not fully met some requirements or implemented a number of key practices for its management functions, including performance planning and reporting and information technology (IT), human capital, financial, and acquisition management. In particular, some HUD plans for executing critical management functions are missing key elements, as described below. HUD also has not always maintained current and complete policies and procedures, an important component of agency governance. These challenges stem partly from a lack of controls to help ensure timely updates of plans, policies, and procedures.
Extent to Which the Department of Housing and Urban Development (HUD) Met Requirements or Was Following Key Practices for Management Functions
Why GAO Did This Study
Through its $48 billion fiscal year 2016 budget, HUD administers a wide variety of programs that help millions of households obtain safe, decent, and affordable housing and that seek to build and strengthen communities. However, GAO and HUD's Office of Inspector General have identified management deficiencies that limit the effectiveness and efficiency of HUD's operations. For example, the Inspector General cited human capital management, financial management systems, and information security among the major management challenges facing HUD in fiscal year 2016 and beyond. GAO was asked to review HUD's management practices.
This report examines HUD's efforts to (1) meet requirements and implement key practices for management functions, including financial, human capital, acquisition, and IT management; and (2) oversee and evaluate programs. GAO reviewed HUD policies and compared them with federal requirements, key practices, and internal control standards. GAO also interviewed HUD officials and industry stakeholders.
What GAO Recommends
GAO makes eight new recommendations designed to improve HUD’s strategic and human capital planning, governance, and program oversight and evaluation. HUD concurred with our recommendations. GAO also maintains that 63 recommendations it made in prior work should be fully implemented to help improve aspects of HUD management.
For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.Fri, 19 Aug 2016 13:00:00 -0400Letter ReportFinancial Management Systems: HUD Needs to Address Management and Governance Weaknesses That Jeopardize Its Modernization Efforts, July 28, 2016http://www.gao.gov/products/GAO-16-656
What GAO Found
In October 2015, as part of its planned New Core financial management systems modernization efforts, the Department of Housing and Urban Development (HUD) completed transitioning 4 of 14 capabilities to shared service solutions. The implemented capabilities were for managing employee travel and relocation; recording time and attendance; performing core accounting functions such as general ledger accounting, producing financial reports, and processing salaries and expenses transactions; and managing procurements. As a result, the department reported that it fully replaced 4 systems, gained access to 7 shared service solutions, streamlined administrative services, and added efficiencies to the processing of financial management functions. For example, the systems used for core accounting and procurement were integrated to support the timely recording of commitments and obligations. However, while the 4 capabilities were transitioned as scheduled, none fully met the department's requirements or expectations. For instance, the department continues to execute programmatic transactions using costly and inefficient legacy systems that were expected to be replaced with New Core. HUD has begun other initiatives to deliver financial management systems capabilities and replace legacy systems that were not addressed under New Core. Detailed plans for these efforts are in development.
HUD's efforts to implement planned capabilities for New Core demonstrated weaknesses in the department's information technology (IT) management and governance practices. Key management practices include fully defining what a program is intended to accomplish; developing the program scope, schedule, and costs; and managing requirements. However, HUD's management of New Core had weaknesses in these areas. For example, the department did not:
outline operations for all planned capabilities or create a roadmap for transitioning to the desired modernized environment;
create comprehensive scope, schedule, and cost documentation; and
manage requirements to ensure they were fully documented and traceable from business needs to system implementation.
Effective governance and executive-level oversight also help ensure programs achieve expected results. Specifically, establishing governance control reviews and providing oversight through, among other things, sustained leadership and coordination among stakeholders can strengthen modernization efforts. However, during the effort to implement New Core, HUD's IT governance and oversight were not fully effective. For example, governance reviews did not raise concerns or require improvement plans for management weaknesses identified, such as the lack of a schedule with a valid critical path. Moreover, executive-level oversight did not ensure effective coordination among stakeholders.
With any further pursuit of new initiatives to modernize its financial management systems, it is critical that the department consistently apply key IT management practices and effective governance to ensure it does not jeopardize the success of these efforts.
Why GAO Did This Study
HUD is responsible for managing and reporting on the nearly $45 billion it spends annually for housing programs. The department has reported its reliance on outdated and costly-to-maintain systems used for financial management functions. In 2013, HUD initiated a modernization program called New Core, which involved migrating financial management capabilities to a federal shared service provider, with expected benefits to include reducing legacy systems costs, improving the data, and resolving weaknesses in its financial management systems. After spending about $58 million over 3 years, HUD decided to end New Core development in April 2016.
Congress included a provision for GAO to review the New Core program. This review (1) determined the financial management systems capabilities implemented through New Core and (2) evaluated HUD's implementation of key IT management practices applied to the program. GAO reviewed New Core plans and documentation to assess the capabilities delivered, compared HUD's implementation to recognized IT practices, and interviewed relevant agency officials.
What GAO Recommends
GAO is recommending that HUD address weaknesses in key IT management practices for future financial systems modernization efforts and take action to improve its governance and strengthen investment oversight. HUD neither agreed nor disagreed with GAO's recommendations, but stated it would improve management practices and governance for future efforts.
For more information, contact Valerie Melvin at (202) 512-6304 or melvinv@gao.gov.Thu, 28 Jul 2016 13:00:00 -0400Letter ReportMortgage Servicing: Community Lenders Remain Active under New Rules, but CFPB Needs More Complete Plans for Reviewing Rules, June 23, 2016http://www.gao.gov/products/GAO-16-448
What GAO Found
Community banks and credit unions (community lenders) remained active in servicing mortgage loans under the Consumer Financial Protection Bureau's (CFPB) new mortgage-servicing rules. Among other things, these rules are intended to provide more information to consumers about their loan obligations. The share of mortgages serviced by community lenders in 2015—about 13 percent—remained small compared to larger lenders, although their share doubled between 2008 and 2015. Large banks continue to service more than half of residential mortgages. Many lenders GAO interviewed said changes in mortgage-related requirements resulted in increased costs, such as hiring staff and updating systems. However, many also stated that servicing mortgages remained important to them for the revenue it can generate and their customer-focused business model.
Banking and credit union regulators' new capital rules changed how mortgage servicing rights (MSR) are treated in calculations of required capital amounts, but GAO found that these new rules appear unlikely to affect most community lenders' decisions to retain or sell MSRs. For example, GAO found that in the third quarter of 2015, about 1 percent of community banks had to limit the amount of MSRs that counted in their capital calculations due to the amount of these assets they held. This may result in some institutions choosing to raise additional capital or sell MSRs to meet required minimum capital amounts, depending on banks' holdings of other types of assets. A few banks with large concentrations of MSRs that GAO spoke with said they were considering selling MSRs or other changes to their capital but market participants told us that the MSR capital treatment was only one of several factors influencing their decisions. Separate capital rules for credit unions also are unlikely to affect most credit unions. For example, credit unions told GAO they did not expect to make changes to their MSR holdings and one credit union explained that it is because MSRs represented a small percentage of their overall capital.
Banking regulators and CFPB estimated the potential impacts of their new rules prior to issuing them by, for example, estimating potential costs of compliance. Banking regulators included the capital rules in a retrospective review of all their rules required by statute, although this review is to be completed before the MSR requirements are fully implemented by the end of 2018. Banking regulators also said they often conduct other informal reviews as needed to evaluate their rules' effectiveness. CFPB also has a statutory retrospective review requirement, but its plans for retrospectively reviewing its mortgage-servicing rules are incomplete. CFPB has not yet finalized a retrospective review plan or identified specific metrics, baselines, and analytical methods, as encouraged in Office of Management and Budget guidance. In addition, GAO found that agencies are better prepared to perform effective reviews if they identify potential data sources and the measures needed to assess rules' effectiveness. CFPB officials said it was too soon to identify relevant data and that they wanted flexibility to design an effective methodology. However, without a completed plan, CFPB risks not having time to perform an effective review before January 2019—the date by which CFPB must publish a report of its assessment.
Why GAO Did This Study
As of September 30, 2015, community lenders held about $3.1 billion in MSRs on their balance sheets. Servicing is a part of holding all mortgage loans, but an MSR generally becomes a distinct asset when the loan is sold or securitized. In response to the 2007–2009 financial crisis, regulators have implemented new rules related to mortgage servicing and regulatory capital to protect consumers and strengthen the financial services industry. GAO was asked to review the effect of these rule changes on U.S. banks and credit unions, particularly community lenders. This report examines (1) community lenders' participation in the mortgage servicing market and potential effects of CFPB's mortgage servicing rules on them, (2) potential effects of the treatment of MSRs in capital rules on community lenders' decisions about holding or selling MSRs, and (3) the process regulators used to consider impacts of these new rules on mortgage servicing and the capital treatment of MSRs.
GAO analyzed financial data, reviewed relevant laws and documents from regulatory agencies, and interviewed 16 community lenders selected based on size and volume of mortgage servicing activities, as well as industry, consumer groups, and federal officials.
What GAO Recommends
CFPB should complete a plan to measure the effects of its new regulations that includes specific metrics, baselines, and analytical methods to be used. CFPB agreed to take steps to complete its plan for conducting a retrospective review of the mortgage servicing rules and refine the review's scope and focus.
For more information, contact Mathew J. Sciré at (202) 512-8678 or sciremj@gao.gov.Mon, 25 Jul 2016 13:00:00 -0400Letter ReportCredit Programs: Key Agencies Should Better Document Procedures for Estimating Subsidy Costs, July 13, 2016http://www.gao.gov/products/GAO-16-269
What GAO Found
The Federal Credit Reform Act of 1990 requires agencies to estimate the cost to the government of extending or guaranteeing credit. This cost, referred to as subsidy cost, equals the net present value of estimated cash flows from the government (e.g., loan disbursements and claim payments to lenders) minus estimated cash flows to the government (e.g., loan repayments, interest payments, fees, and recoveries on defaulted loans) over the life of the loan, excluding administrative costs. Agencies use established methods and data to estimate the future costs of a program based on what is known today. Based on budgeting and accounting guidance, GAO determined that agencies' estimation processes should include various key elements to help ensure that estimates are supported, reliable, and reasonable. For example, agency management should compare estimated and actual cash flows to identify potential trends. The figure below lists the key elements GAO identified based on relevance to creating credible cost estimates.
To assess how agencies addressed these key elements in their subsidy cost estimation processes, GAO assessed (1) the Department of Agriculture's (USDA) Export Credit Guarantee (GSM-102) Program, (2) the Department of Housing and Urban Development's (HUD) Mutual Mortgage Insurance Fund, and (3) the Department of Education's (Education) William D. Ford Federal Direct Loan Program (Direct Student Loan Program). GAO found that these agencies varied in their implementation of these key elements, as shown below.
Key Elements of the Subsidy Cost Estimation Process
While USDA documented the key elements of the estimation process for the GSM-102 program, HUD and Education lacked policies and procedures and adequate documentation for certain other key elements. Until these key elements are fully addressed, HUD and Education have increased the risk that institutional knowledge used in the estimation process may be lost and estimates may not be supported, reliable, and reasonable.
Why GAO Did This Study
Federal direct loans and loan guarantees outstanding have doubled from $1.5 trillion as of September 30, 2008, to $3.0 trillion as of September 30, 2015, as reported in the financial reports of the U.S. government. In light of the growing portfolio of outstanding direct loans and loan guarantees, questions have been raised about how agencies estimate the subsidy cost of credit programs.
GAO was asked to review the process federal agencies use to develop subsidy cost estimates for credit programs. This report examines (1) the key elements federal agencies should consider when developing subsidy cost estimates and (2) the extent to which certain agencies addressed these key elements when estimating the subsidy costs for selected federal credit programs. GAO analyzed budgeting and accounting guidance to identify a list of key elements agencies should consider when estimating subsidy costs and assessed the subsidy cost estimation processes used for three credit programs against these key elements. The three programs were selected based on average loan amounts and/or loan volume.
What GAO Recommends
GAO recommends that HUD and Education develop and document additional procedures related to the subsidy cost estimation process. HUD and Education concurred with GAO's recommendations and described ongoing and planned actions to address them.
For more information, contact Cheryl E. Clark at (202) 512-9377 or clarkce@gao.gov.Wed, 13 Jul 2016 13:00:00 -0400Letter ReportLow-Income Housing Tax Credit: Some Agency Practices Raise Concerns and IRS Could Improve Noncompliance Reporting and Data Collection, May 11, 2016http://www.gao.gov/products/GAO-16-360
What GAO Found
Allocating agencies that administer the Low-Income Housing Tax Credit (LIHTC) program have certain flexibilities for implementing program requirements and the agencies have done so in various ways. Although GAO found that allocating agencies generally have processes to meet requirements for allocating credits, reviewing costs, and monitoring projects, some of these practices raised concerns:
More than half of the qualified allocation plans (developed by 58 allocating agencies) that GAO analyzed did not explicitly mention all selection criteria and preferences that Section 42 of the Internal Revenue Code requires.
Allocating agencies notified local governments about proposed projects as required, but some also required letters of support from local governments. The Department of Housing and Urban Development (HUD) has raised fair housing concerns about this practice, saying that local support requirements (such as letters) could have a discriminatory influence on the location of affordable housing.
Allocating agencies can increase (boost) the eligible basis used to determine allocation amounts for certain buildings at their discretion. However, they are not required to document the justification for the increases. The criteria used to award boosts varied, with some allocating agencies allowing boosts for specific types of projects and one allowing boosts for all projects in its state.
In a July 2015 report, GAO found that Internal Revenue Service (IRS) oversight of allocating agencies was minimal and recommended joint administration with HUD to more efficiently address oversight challenges. GAO's work for this review continues to show that IRS oversight remains minimal (particularly in reviewing allocation plans and practices for awarding discretionary basis boosts) and that action is still warranted to address GAO's prior recommendation. In this report, GAO also identified the following issues related to managing noncompliance information from allocating agencies:
IRS provides discretion to allocating agencies for reporting noncompliance data, and has not provided feedback about data submissions. Consequently, allocating agencies have been inconsistently reporting these data to IRS.
IRS has not used the information that it receives from allocating agencies to identify trends in noncompliance. GAO's analysis shows that IRS had recorded only about 2 percent of the noncompliance information it received since 2009 in its database.
IRS has not used key information when determining whether to initiate an audit, potentially missing opportunities to initiate LIHTC-related audits.
In contrast, HUD collects and analyzes housing data, and through a Rental Policy Working Group initiative, now adds LIHTC inspection results to its database. The IRS division responsible for LIHTC was unaware of this effort and is not involved with the working group. By participating in the working group, IRS could leverage HUD data to better understand the prevalence of noncompliance in LIHTC properties and determine whether to initiate audits.
Why GAO Did This Study
LIHTC encourages private-equity investment in low-income housing through tax credits. The program is administered by IRS and allocating agencies, which are typically state or local housing finance agencies established to meet affordable housing needs of their jurisdictions. Allocating agency responsibilities (in Section 42 of the Internal Revenue Code and regulations of the Department of the Treasury) encompass awarding credits, assessing reasonableness of project costs, and monitoring projects. GAO was asked to review allocating agencies' oversight of LIHTC. This report reviews how allocating agencies administer the LIHTC program and identifies any oversight issues. GAO reviewed regulations and guidance for allocating agencies; analyzed 58 allocation plans (from 50 states, the District of Columbia, U.S. territories, New York City, and Chicago); performed site visits and file reviews at nine selected allocating agencies; and interviewed IRS and HUD officials.
This is a public version of a sensitive report that GAO issued in May 2016 and does not include details that IRS deemed tax law enforcement sensitive.
What GAO Recommends
GAO recommends that IRS clarify when agencies should report noncompliance and participate in the Rental Policy Working Group to assess the use of HUD's database to strengthen IRS oversight. IRS agreed it should improve its noncompliance data, but also stated that it had to consider resource constraints. HUD supported using its expertise and experience administering housing programs to improve LIHTC.
For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.Wed, 08 Jun 2016 13:00:00 -0400Letter ReportHousing for Special Needs: Funding for HUD's Supportive Housing Programs, May 31, 2016http://www.gao.gov/products/GAO-16-424
What GAO Found
Until program funding for new development ceased in fiscal year 2012, the Department of Housing and Urban Development (HUD) used a two-phase process to allocate and award capital advances for Section 202 Supportive Housing for the Elderly (Section 202) and Section 811 Supportive Housing for Persons with Disabilities (Section 811). First, HUD headquarters allocated the amount of appropriated funds for capital advances to each of the 18 regional offices using a funding formula, which accounted for regional housing needs and cost characteristics. Funding was further divided among 52 local offices using a set-aside formula and was also split between metropolitan and nonmetropolitan areas for Section 202. In 2010, HUD eliminated the set-aside which had guaranteed a minimum amount of funding for each local field office. The process for making capital advance awards did not change, but HUD was better able fund properties at a higher level. Second, applicants submitted applications to the applicable HUD regional office, and staff from these offices evaluated and scored applications based on various criteria, including capacity to provide housing and ability to secure funding from other sources. Applicants in each regional office were ranked highest to lowest and funded in that order. Any residual funds that were not sufficient to fund the next project in rank order were pooled nationwide and HUD headquarters used a national ranking to fund additional projects.
Most but not all states (including the District of Columbia and Puerto Rico) had applicants that received capital advances for Section 202 and Section 811 in fiscal years 2008 through 2011. GAO found that some states had applicants that received capital advances in each of the years reviewed, while other states did not. In the period reviewed, four states had no applicants that received Section 202 capital advance awards, and eight states had no applicants that received Section 811 capital advance awards. HUD officials cited several reasons applicants from some states may not have received funding during this period, including applications that were submitted may have been ineligible or higher-scoring applications from other states may have been selected instead. The capital advance amounts varied. For Section 202, total capital advance amounts for fiscal years 2008-2011 for states that received at least one award ranged from less than $24 million to more than $75 million. For Section 811, total capital advance amounts for fiscal years 2008-2011 for states that received at least one capital advance award ranged from less than $4 million to more than $15 million.
Number of States with Capital Advance Awards, Fiscal Years 2008–2011
Why GAO Did This Study
Over 151,000 very low-income elderly and disabled households rely on the Section 202 and the Section 811 programs to provide affordable rents and housing with supportive services. Before fiscal year 2012, nonprofit organizations interested in developing units for these populations could apply to HUD for grants known as capital advances, which did not have to be repaid as long as the property continued to serve these populations for 40 years. Since fiscal year 2012, Congress has not appropriated any funding for capital advances for either program, although it has continued to fund rental assistance for existing developments.
The House report accompanying the Consolidated and Further Continuing Appropriations Act of 2015 contained a provision for GAO to provide information on HUD capital advances for the Section 202 and Section 811 programs from 2008–2013.
This report examines (1) how HUD determined the capital advance amounts awarded to sponsors for Section 202 and Section 811 and (2) the number of capital advance awards and amounts by state from fiscal years 2008–2011 and any changes in the distribution of capital advances over that period. GAO reviewed budget documents and funding announcements and interviewed agency officials.
GAO makes no recommendations in this report. GAO provided a draft to HUD for its review and received technical comments, which were incorporated as appropriate.
For more information, contact Daniel Garcia-Diaz, 202-512-8678 or garciadiazd@gao.gov.Tue, 31 May 2016 13:00:00 -0400Letter ReportRural Housing Service: Actions Needed to Strengthen Management of the Single Family Mortgage Guarantee Program, March 31, 2016http://www.gao.gov/products/GAO-16-193
What GAO Found
The estimated credit subsidy costs (expected net lifetime costs) of single-family mortgages guaranteed by the Department of Agriculture's (USDA) Rural Housing Service (RHS) substantially increased in recent years, partly due to high losses from the 2007 through 2011 housing crisis. For example, the fiscal year 2013 and 2014 reestimates (which federal agencies must do annually) indicated higher expected costs of $804 million and $615 million, respectively, compared with the prior reestimates (see fig.). To improve the current estimation method (which relies on average historical losses), RHS hired a contractor to develop statistical models that will predict losses based on loan, borrower, and economic variables.
Rural Housing Service Guaranteed Single-Family Mortgage Portfolio and Annual Net Credit Subsidy Reestimates for the Portfolio, Fiscal Years 2004-2014
RHS's policies and procedures are not fully consistent with all Office of Management and Budget (OMB) standards for managing credit programs (OMB Circular A-129). RHS's policies and procedures are consistent with the OMB standards in most areas, including loan documentation, collateral requirements, and aspects of applicant screening and lender oversight. However, RHS
has not established and published all required lender eligibility standards such as principal officer qualifications (e.g., experience level) and financial standards (e.g., minimum net worth);
lacks written policies and procedures for a committee responsible for analyzing and addressing the credit quality (default risk) of guaranteed loans;
has not established a position independent of program management to help manage the risks of its guaranteed portfolio;
has not established risk thresholds (for example, maximum portfolio- or loan-level loss tolerances) and uses certain loan performance benchmarks that have limited value for risk management; and
has not incorporated a discussion of areas needing increased management focus into its “dashboard” reports.
These and other inconsistencies occurred in part because RHS has not completed an ongoing assessment of its policies and procedures against Circular A-129. Furthermore, the Office of Rural Development (which oversees RHS) has not established procedures for prioritizing Circular A-129 reviews of its credit programs based on risk. More fully adhering to Circular A-129 standards would enhance RHS's effectiveness in managing the risks of its guarantee program.
Why GAO Did This Study
In recent years, RHS's single-family mortgage guarantee program has grown significantly, and RHS currently manages a guaranteed portfolio of more than $100 billion. RHS helps low- and moderate-income rural residents purchase homes by guaranteeing mortgages made by private lenders.
GAO was asked to examine the program's cost estimation methodology and risk-management structure. This report discusses (1) recent trends in the credit subsidy costs of RHS's guarantee program and the process for estimating those costs and (2) the extent to which RHS's policies and procedures for the program are consistent with federal standards for managing credit programs. GAO analyzed RHS budget data for fiscal years 2004 through 2014, examined RHS policies and procedures, reviewed OMB standards, and interviewed RHS officials.
What GAO Recommends
GAO is making 11 recommendations to USDA to help ensure that RHS's policies and procedures are consistent with OMB standards and to strengthen management of the guarantee program and other credit programs. Areas on which the recommendations focus include overseeing lenders, formalizing or establishing key risk management functions, and assessing and reporting on portfolio risk and performance. RHS agreed with or said it was acting on five of the recommendations. RHS neither agreed nor disagreed with the rest but said it generally recognized the underlying risk implications. GAO maintains that the recommendations are valid, as discussed in the report.
For more information, contact Mathew Scirè at (202) 512-8678 or sciremj@gao.gov.Mon, 02 May 2016 13:00:00 -0400Letter ReportTroubled Asset Relief Program: Status of Housing Programs, January 08, 2016http://www.gao.gov/products/GAO-16-279R
What GAO Found
As of October 31, 2015, three Troubled Asset Relief Program (TARP) housing programs— Making Home Affordable (MHA), Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest Hit Fund or HHF), and Federal Housing Administration’s Short Refinance Program (FHA Short Refinance)—remained active. Combined, the Department of the Treasury (Treasury) had obligated $37.51 billion to these three programs. As of October 31, 2015, Treasury had disbursed $18.34 billion (49 percent). The amount and percentage of disbursements varied across these programs.
Treasury had disbursed $12.59 billion (42 percent) of the $29.78 billion in TARP funds allocated to MHA programs as of October 2015. Of the $17.19 billion remaining, Treasury had committed $9.53 billion to the payment of future financial incentives with respect to existing MHA transactions. As of September 2015, approximately 2.5 million homeowner assistance actions had taken place under MHA programs, according to Treasury.
Treasury had disbursed $5.73 billion (75 percent) of the $7.6 billion it had allocated to the 18 states and the District of Columbia under HHF as of October 2015. The program had assisted 241,775 households as of September 2015.
Treasury had disbursed $0.02 billion (15 percent) of the $0.13 billion it had currently allocated to the FHA Short Refinance program as of October 2015. FHA had insured 4,156 loans that could require Treasury to pay claims to lenders in the event these loans incur losses, as of September 2015.
Why GAO Did This Study
The Emergency Economic Stabilization Act of 2008 provided GAO with broad oversight authorities for actions taken under TARP and included a provision that GAO report at least every 60 days on TARP activities and performance.&nbsp; As a result, GAO has continued to monitor and provide updates on TARP programs.&nbsp; This 60-day report provides an update on the status of Treasury’s disbursements and participation for TARP housing programs that were active as of October 31, 2015. This included the
MHA, which includes several programs intended to encourage the modification of eligible mortgages and provide other relief to distressed borrowers;
HHF, which supports innovative measures developed by state housing finance agencies and approved by Treasury to help borrowers in states hit hardest by the aftermath of the housing crisis; and
FHA Short Refinance, which provides underwater borrowers—those with properties that are worth less than the principal remaining on their mortgage—whose loans are current and are not insured by FHA with the opportunity to refinance into an FHA-insured mortgage.
What GAO Recommends
GAO is not making any recommendations in this report.
For more information, contact Mathew J. Scirè at (202) 512-8678 or sciremj@gao.gov or Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.Fri, 08 Jan 2016 12:00:00 -0500CorrespondenceAffordable Rental Housing: Assistance Is Provided by Federal, State, and Local Programs, but There Is Incomplete Information on Collective Performance, September 15, 2015http://www.gao.gov/products/GAO-15-645
What GAO Found
The federal government and state and local entities provide both rental assistance and affordable housing through a wide variety of programs. The six participating audit offices that conducted coordinated audits on rental assistance reported that the programs they reviewed were funded solely through one level of government or were funded by a combination of resources, as shown in the figure below. In February 2012, GAO found instances of fragmentation and overlap among federal rental assistance programs. In this review, GAO and the participating audit offices found indications of fragmentation and overlap among programs reported in Oregon and Washington.
Government Funding for Low-Income Rental Assistance and Housing Development Programs
The Rental Policy Working Group (RPWG), which was established in 2010 by the White House Domestic Policy Council to better coordinate federal rental policy, collaborates with state and local governments in multiple areas. The participating audit offices found that their government collaborated with other jurisdictions.
The Department of Housing and Urban Development (HUD), the Internal Revenue Service (IRS) and the participating audit offices reported on the performance of rental assistance programs to varying extents. HUD reported on its performance for only one of its two rental assistance strategic objectives, but IRS had not set goals or assessed the performance of the Low Income Housing Tax Credit. The participating audit offices reported that most jurisdictions had performance information at both the jurisdictional and program levels. However, without information on the government-wide performance of rental assistance, the Congress, decision makers, and stakeholders at all levels of government are hampered in their ability to set priorities and allocate resources. While complete and reliable information is a vital component of assessing effectiveness, GAO recognizes it is difficult to identify relevant federal, state, and local programs; collect performance information from multiple levels of government; and synthesize the information to reflect collective performance. HUD, the nation's leading housing agency, in consultation with the RPWG, is well positioned to capitalize on its existing collaboration among federal agencies and with state and local jurisdictions.
Why GAO Did This Study
The federal government, states, and localities play a significant role in providing rental assistance and developing affordable rental housing for low-income households.
This report (1) identifies the federal, state, and local government funded programs that provide rental assistance to low-income households and identifies indications of program fragmentation and overlap; (2) assesses the extent of intergovernmental collaboration for rental assistance; and (3) determines what is known about performance at the federal level, at selected state and local jurisdictions and for the collective performance of the levels of government providing rental assistance.
GAO partnered with 25 state and local audit offices to design an audit plan that 6 participating audit offices conducted on rental assistance to low-income households. GAO assessed the completed results, reviewed documentation, and interviewed officials from HUD, Treasury, and IRS.
What GAO Recommends
GAO recommends that HUD, in consultation with the RPWG, work with states and localities to develop an approach for compiling and reporting on the collective performance of federal, state, and local rental assistance programs. HUD disagreed with the recommendation as originally drafted because it did not believe that it was addressed to the appropriate party. GAO agreed and modified the recommendation to direct it to HUD, in consultation with the RPWG. Treasury and IRS did not comment on the recommendation.
For more information, contact J. Christopher Mihm at (202) 512-6806 or mihmj@gao.gov.Tue, 15 Sep 2015 13:00:00 -0400Letter ReportLender-Placed Insurance: More Robust Data Could Improve Oversight, September 08, 2015http://www.gao.gov/products/GAO-15-631
What GAO Found
Mortgage servicers purchase lender-placed insurance (LPI) for mortgages whose borrower-purchased insurance coverage lapses, most often because of nonpayment by the borrower or cancellation or nonrenewal by the original insurer. The limited information available indicates that LPI generally affects 1 percent to 2 percent of all mortgaged properties annually and has become less prevalent since the 2007-2009 financial crisis as foreclosures have declined. Although used more often when borrowers without escrow accounts (about 25 percent to 40 percent of borrowers) stop paying their insurance premiums, servicers also use LPI when an insurer declines to renew a policy. LPI insurers often provide services such as tracking properties to help servicers identify those without insurance and confirming coverage. LPI insurers said they must refund premiums if a borrower provides evidence of coverage, which occurs on about 10 percent of policies. The Federal Emergency Management Agency offers flood LPI, but industry officials said most servicers prefer private coverage because of more comprehensive coverage and lower rates, among other things.
LPI premium rates are higher than rates for borrower-purchased insurance, and stakeholders disagreed about whether the difference is justified. Insurers pointed out that they provide coverage for any property in a servicer's portfolio without a rigorous underwriting process, and the limited information requires higher rates. They added that LPI properties tended to have higher risk characteristics, such as higher-risk locations (along the coast) and higher vacancy rates because of foreclosures. But some consumer advocates and state regulators said that the factors that insurers cite for higher rates, as well as the insurers' limited loss histories, do not justify the magnitude of the premium differences. They also said borrowers have little influence over the price of LPI and that some insurers competed for the servicers' business by providing commissions to the servicer that passed the costs on to the borrower through higher premium rates. Insurers, however, said that LPI premium rates were filed with and approved by state regulators and that commissions were a standard industry practice, but their use had decreased.
State insurance regulators have primary responsibility for overseeing LPI insurers, but federal financial regulators generally oversee the servicers that purchase LPI coverage for their portfolios. However, a lack of comprehensive data at the state and national levels limits effective oversight of the LPI industry. For example, regulators lack reliable data that would allow them to evaluate the cost of LPI or the appropriateness of its use. The National Association of Insurance Commissioners (NAIC), which helps coordinate state insurance regulation, requires insurers to annually submit state-level LPI data, but the data were incomplete and unreliable. NAIC provides guidance for the reporting of these data and shares responsibility with state regulators for reviewing and analyzing the data, but neither has developed policies and procedures sufficient for ensuring their reliability. State and federal regulators have coordinated to collect more detailed national data to better understand the LPI industry, but insurers failed to provide them all of the requested information, and whether and when they will is unknown. Without more comprehensive and reliable data, state and federal regulators lack an important tool to fully evaluate LPI premium rates and industry practices and ensure that consumers are adequately protected.
Why GAO Did This Study
Mortgage servicers use LPI to protect the collateral on mortgages when borrower-purchased homeowners or flood insurance coverage lapses. The 2007-2009 financial crisis resulted in an increased prevalence of LPI. Because LPI premiums are generally higher than those for borrower-purchased coverage, state insurance regulators and consumer groups have raised concerns about costs to consumers.
This report addresses (1) the extent to which LPI is used; (2) stakeholder views on the cost of LPI; and (3) state and federal oversight of LPI. GAO examined documentation, studies, and laws and regulations related to LPI, and interviewed stakeholders including state insurance and federal financial regulators, consumer advocates, insurers, servicers, and industry associations. GAO selected interviewees based on their involvement in the LPI market and other factors to obtain a diverse range of perspectives. GAO selected the seven state insurance regulators to interview based on a number of factors including LPI premium volume and involvement in the LPI market.
What GAO Recommends
GAO recommends that NAIC work with state insurance regulators to collect sufficient, reliable data to oversee the LPI market. This includes working with state insurance regulators to develop and implement more robust policies and procedures for LPI data collected annually from insurers and to complete efforts to obtain more detailed national data from insurers. NAIC said it would consider the recommendations as part of its ongoing work in the area.
For more information, contact Alicia Puente Cackley at (202) 512-8678 or cackleya@gao.gov.Tue, 08 Sep 2015 13:00:00 -0400Letter ReportMortgage Reforms: Actions Needed to Help Assess Effects of New Regulations, June 25, 2015http://www.gao.gov/products/GAO-15-185
What GAO Found
Federal agency officials, market participants, and observers estimated that the qualified mortgage (QM) and qualified residential mortgage (QRM) regulations would have limited initial effects because most loans originated in recent years largely conformed with QM criteria.
The QM regulations, which address lenders' responsibilities to determine a borrower's ability to repay a loan, set forth standards that include prohibitions on risky loan features (such as interest-only or balloon payments) and limits on points and fees. Lenders that originate QM loans receive certain liability protections.
Securities collateralized exclusively by residential mortgages that are “qualified residential mortgages” are exempt from risk-retention requirements. The QRM regulations align the QRM definition with QM; thus, securities collateralized solely by QM loans are not subject to risk-retention requirements.
The analyses GAO reviewed estimated limited effects on the availability of mortgages for most borrowers and that any cost increases (for borrowers, lenders, and investors) would mostly stem from litigation and compliance issues. According to agency officials and observers, the QRM regulations were unlikely to have a significant initial effect on the availability or securitization of mortgages in the current market, largely because the majority of loans originated were expected to be QM loans. However, questions remain about the size and viability of the secondary market for non-QRM-backed securities.
Agencies have begun planning their reviews of the QM and QRM regulations (due January and commencing December 2019, respectively); however, these efforts have not included elements important for conducting effective retrospective reviews. Federal guidance encourages agencies to preplan their retrospective reviews and carefully consider how best to promote empirical testing of the effects of rules. To varying degrees, the relevant agencies have identified outcomes to examine, potential data sources, and analytical methods. But existing data lack important information relevant to the regulations (such as loan performance or borrower debt to income) and planned data enhancements may not be available before agencies start the reviews. The Bureau of Consumer Financial Protection (CFPB) has proposed expanding Home Mortgage Disclosure Act data reporting requirements, but the earliest that the enhanced data will be available is 2017. Similarly, the Department of Housing and Urban Development (HUD) identified how it intends to examine its QM regulations and some potential data sources but has yet to determine how it would measure the effects of these regulations, including metrics, baselines, and analytical methods. Agencies also have not specified how they will conduct their reviews, including determining which data and analytical methods to use. Finalizing plans to retrospectively review the mortgage regulations will position the agencies to better measure the effects of the QM and QRM regulations and identify any unintended consequences. Additionally, the agencies could better understand data limitations and methodological challenges and have sufficient time to develop methods to deal with these limitations and challenges.
Why GAO Did This Study
Amid concerns that risky mortgage products and poor underwriting standards contributed to the recent housing crisis, Congress included mortgage reform provisions (QM and QRM) in the Dodd-Frank Wall Street Reform and Consumer Protection Act. CFPB's regulations establishing standards for QM loans became effective in January 2014. More recently, six agencies jointly issued the final QRM rule that will become effective in December 2015. GAO was asked to review possible effects of these regulations. This report (1) discusses views on the expected effects of the QM and QRM regulations, and (2) examines the extent of agency planning for reviewing the regulations' effects, among its objectives. GAO's methodologies included identifying and reviewing academic, industry, and federal agency analyses on the expected effects of the regulations. GAO also reviewed federal guidance on retrospective reviews and interviewed agency officials to assess agency efforts to examine the effects of the QM and QRM regulations.
What GAO Recommends
CFPB, HUD, and the six agencies responsible for the QRM regulations should complete plans to review the QM and QRM regulations, including identifying specific metrics, baselines, and analytical methods. CFPB, HUD, and one QRM agency—the Federal Deposit Insurance Corporation—concurred or agreed with the recommendations. The other QRM agencies did not explicitly agree with the recommendations, but outlined ongoing efforts to plan their reviews.
For more information, contact Mathew J. Scirè at (202) 512-8678 or sciremj@gao.gov.Mon, 27 Jul 2015 13:00:00 -0400Letter ReportLow-Income Housing Tax Credit: Joint IRS-HUD Administration Could Help Address Weaknesses in Oversight, July 15, 2015http://www.gao.gov/products/GAO-15-330
What GAO Found
Internal Revenue Service (IRS) oversight of the Low-Income Housing Tax Credit (LIHTC) program has been minimal. Specifically, since 1986 IRS conducted seven audits of 56 state housing finance agencies (HFA) on which IRS relies to administer and oversee the program. (HFAs are state-chartered authorities established to meet affordable housing needs.) Federal internal control standards call for monitoring to be performed continually in the course of normal operations and be ingrained in agency operations. Oversight of HFAs has been minimal, partly because LIHTC is viewed as a peripheral program in IRS in terms of its mission and priorities for resources and staffing. Without such reviews, IRS cannot determine the extent of noncompliance and other issues at HFAs.
IRS jointly administers other programs: the Historic Rehabilitation Tax Credit with the National Park Service and the New Markets Tax Credit with the Community Development Financial Institutions Fund in the Department of the Treasury. The federal agencies that work with IRS to oversee these programs have missions consistent with the purposes of these programs; they also conduct monitoring, report on performance, and collect data. For example, officials of both agencies told GAO that staff routinely conduct site visits and other project reviews. In these cases, IRS also is able to benefit from the other federal agencies' policy and subject-matter expertise. Likewise, the Department of Housing and Urban Development's (HUD) experience in administering affordable housing programs and working with HFAs may benefit IRS in its administration and oversight of the LIHTC program. More specifically, HUD relies on state and local housing agencies (including HFAs) to implement its programs and already has processes and procedures in place to oversee them. Although GAO and others have identified weakness in HUD's program evaluation and oversight activities, HUD has taken steps to address some of these issues and its existing processes and procedures constitute a framework on which further changes and improvement can be made. Moreover, IRS is not well positioned to oversee LIHTC. Since 1990, IRS has been on GAO's high-risk list due to significant capacity challenges and incomplete monitoring of tax law enforcement. IRS's budget has been reduced by 10 percent and enforcement program performance and staffing levels have declined since 2010.
Joint administration with HUD could better align program responsibilities with each agency's mission and more efficiently address existing oversight challenges. Under joint administration, IRS could retain responsibilities consistent with its mission (as it does in the other two tax credit programs). For example, IRS could continue to enforce taxpayer compliance. Assigning oversight responsibilities to HUD could involve additional resources for HUD. For LIHTC and the other two programs, GAO found that each used different mechanisms to fund administrative responsibilities. For instance, Historic Rehabilitation uses fees to fund its program, including oversight, while New Markets requests funding through annual appropriations. The level of resources that would be needed to perform an adequate level of oversight of HFAs is not known. An estimate of potential costs and funding options for financing enhanced federal oversight of the LIHTC program could benefit the agency involved and provide useful information to Congress.
Why GAO Did This Study
The LIHTC program, established under the Tax Reform Act of 1986, is the largest source of federal assistance for developing affordable rental housing and cost an estimated $8 billion in forgone revenue in 2014. LIHTC encourages private equity investment in low-income housing through tax credits. HFAs receive an annual allocation of tax credits and competitively award the credits to owners of qualified projects. GAO was asked to review the administration and oversight of the program. This report addresses, among other things, (1) IRS oversight of LIHTC and (2) how LIHTC administration and oversight compare with that of other tax credit programs. GAO reviewed regulations and guidance for monitoring HFAs and taxpayers; analyzed information on IRS audits of HFAs; reviewed selected programs that award tax credits similarly to LIHTC; and interviewed IRS, HUD, and HFA officials.
What GAO Recommends
Congress should consider designating HUD as a joint administrator of the program. HUD's role should include oversight responsibilities (such as regular monitoring of HFAs) to help address deficiencies GAO identified. Treasury agreed HUD could be responsible for analyzing the effectiveness of LIHTC, with IRS continuing to enforce tax law. HUD and IRS did not comment on the matter for congressional consideration. HUD supported consideration of a structure for enhanced interagency coordination. The association representing HFAs disagreed with the matter. GAO maintains that joint administration would strengthen program oversight.
For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.Thu, 23 Jul 2015 13:00:00 -0400Letter ReportHUD Public and Indian Housing Programs: Progress on Prior GAO Recommendations to Enhance Accountability and Efficiency, July 10, 2015http://www.gao.gov/products/GAO-15-747T
What GAO Found
As of June 2015, the Department of Housing and Urban Development (HUD) had addressed some of GAO's 16 prior recommendations for four programs: Moving to Work (MTW), Family Self-Sufficiency (FSS), Housing Choice Voucher (voucher), and Indian Housing Block Grant (IHBG). But other recommendations require further attention. Specifically:
HUD has addressed seven of eight recommendations GAO made in April 2012 to improve assessment of MTW, capture lessons learned, and enhance program oversight. The MTW program is intended, among other things, to give state and local housing agencies flexibility to design and test innovative strategies for providing housing assistance. HUD agreed or partially agreed with most of GAO's recommendations. However, it has yet to fully implement a process for systematically identifying lessons learned.
HUD has taken initial steps to address GAO's two recommendations from a July 2013 report to develop and implement (1) a process to better ensure that data on FSS grants were complete and (2) a strategy for regularly analyzing FSS participation and outcome data. The FSS program is designed to help families receiving HUD housing assistance become self-sufficient through case management and referrals to supportive services such as education and training. HUD agreed with the recommendations and has revised its data collection and analysis procedures. But it has not yet provided full documentation of these efforts so that GAO can assess its actions.
HUD has implemented one of three recommendations GAO made in a 2012 report on the voucher program. The voucher program subsidizes private market rents for about 2 million low-income households. HUD neither agreed nor disagreed with these recommendations. But HUD has addressed one that is aimed at streamlining the program's administration by, among other things, publishing a proposed rule that includes measures to simplify administrative processes. HUD has not yet provided GAO evidence that it has implemented the two other recommendations, one on informing Congress about excess state and local housing agency reserves and one on informing Congress about HUD's criteria for redistributing these reserves.
HUD has implemented two of three GAO recommendations from a March 2014 report on the IHBG program. IHBG annually provides more than $600 million in housing assistance to about 570 federally and state-recognized Indian tribes. Consistent with GAO's recommendations, HUD has broadened its solicitation of input from block grant recipients and developed a location on its website to collect and disseminate best practices on housing development. HUD has also taken steps to address a third recommendation to collaborate with other agencies that work with Indian tribes to improve interagency coordination on environmental reviews for tribal housing development. The agencies' efforts to develop a coordinated environmental review process are ongoing.
Why GAO Did This Study
HUD's Office of Public and Indian Housing (PIH) administers programs that help some of the nation's most vulnerable households—including low-income families and members of Native Americans tribes—obtain safe, decent, and affordable housing. PIH also operates complementary programs, such as FSS, that are designed to help assisted households become more self-sufficient. PIH programs accounted for about 60 percent of HUD's budget authority for fiscal year 2015, or about $26 billion.
GAO has issued four reports since March 2012 on PIH programs, including the MTW, FSS, voucher, and IHBG programs, that contained recommendations to HUD (see GAO-12-300 , GAO-12-490 , GAO-13-581 , and GAO-14-255 ). This testimony is based on these four reports. It discusses, among other things, HUD's progress in addressing prior GAO recommendations on the MTW and FSS programs, the voucher program, and the IHBG program.
To update the status of prior recommendations, GAO reviewed new or revised HUD policies, procedures, and reports and interviewed officials.
For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.Fri, 10 Jul 2015 13:00:00 -0400TestimonyTroubled Asset Relief Program: Treasury Could More Consistently Analyze Potential Benefits and Costs of Housing Program Changes, July 06, 2015http://www.gao.gov/products/GAO-15-670
What GAO Found
Between February 2009 and May 2015, the U.S. Department of the Treasury (Treasury) disbursed approximately $16.3 billion of the $37.5 billion in Troubled Asset Relief Program (TARP) funds allocated to support housing programs. The number of new borrowers with permanent modifications added to the Home Affordable Modification Program (HAMP), the key component of these programs, began to decline in late 2013 but has stabilized at between 9,000 and 15,000 additions per month. Activity under HAMP Tier 1, the original modification for qualified borrowers seeking to reduce their mortgage payments to affordable levels (rates periodically reset), has gradually declined. HAMP Tier 2, a broader fixed rate modification announced in 2012, has gradually grown to account for the majority of new entrants. Since October 2014, Treasury has expanded incentives in order to draw new entrants into the programs and further assist existing participants.
In making program changes, Treasury took steps to assess their benefits and costs but did not fully meet all of the key elements of federal benefit-cost analysis guidance, and thus has limited assurance that the additional expenditures are an effective and efficient use of taxpayer dollars (see figure below). For example, it is unclear whether the recent changes, such as extending performance incentives to borrowers in the sixth year of their HAMP modification (estimated to cost $4-6 billion), will reduce redefaults. Treasury officials told GAO that borrower surveys confirmed that borrowers responded to performance incentives. But Treasury does not have the estimates needed to fully assess the effectiveness of this or other recent changes. Treasury officials said that program benefits and costs depended on unknown factors and macroeconomic trends and that program benefits were difficult to quantify. Office of Management and Budget guidance and GAO's past work stress that analyzing benefits and costs can help decision makers choose among alternatives. Without full and comprehensive analyses, Treasury will be challenged to determine whether program changes are actually achieving desired goals and are an efficient use of taxpayer dollars.
Extent Treasury Met the Four Key Elements of OMB Circular A-94's Benefit-Cost Analysis for Three Recent Program Changes
Why GAO Did This Study
Treasury has allocated $37.5 billion in TARP funds to help struggling homeowners avoid potential foreclosure since 2009. The Emergency Economic Stabilization Act of 2008 includes a provision for GAO to report every 60 days on TARP activities. This 60-day report examines (1) the status of TARP-funded housing programs and (2) the extent to which Treasury's analytic framework for considering recent program changes was consistent with federal guidance and best practices. To do this work, GAO analyzed borrower participation levels, reviewed program documentation, and interviewed Treasury officials.
What GAO Recommends
To bring greater rigor and efficiency to decisions about the use of federal funds, GAO recommends that Treasury develop and implement policies and procedures that establish a standard process to better ensure that TARP-funded housing program changes are based on benefit-cost analyses that meet key elements. Treasury agreed to consider applying GAO's recommendation going forward.
For more information, contact Mathew Scire at (202) 512-8678 or sciremj@gao.gov.Mon, 06 Jul 2015 13:00:00 -0400Letter ReportOlder Adults: Federal Strategy Needed to Help Ensure Efficient and Effective Delivery of Home and Community-Based Services and Supports, May 20, 2015http://www.gao.gov/products/GAO-15-190
What GAO Found
Five federal agencies within four departments fund home and community-based services and supports that older adults often require to continue living independently in their own homes and communities. The Administration on Aging (AoA) and Centers for Medicare &amp; Medicaid Services (CMS) in the Department of Health and Human Services (HHS), and the Departments of Housing and Urban Development (HUD), Transportation (DOT), and Agriculture (USDA) provide funds, often through state agencies, to local governments and community-based organizations.
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The Older Americans Act of 1965 (the Act) requires AoA to promote and support a comprehensive system of services.
In the three localities GAO visited, local area agencies on aging, assisted by other community-based organizations, took the lead in planning and delivering services and supports for older adults, paid for with a mix of federal, state, and local funding. An Atlanta organization employed home-care aides for older adults and delivered meals. Senior housing developments across the three localities connected more frail residents to in-home services. In San Francisco and Montgomery County, grassroots organizations known as villages provided help with errands. Officials in two localities reported that flat funding of certain state funds, combined with the growing number of older adults, has resulted in waiting lists for affordable housing and in-home services.
The Act requires AoA to facilitate collaboration among federal agencies; however, the five agencies that fund these services and supports for older adults do so, for the most part, independently. GAO's work on interagency collaboration has found that collaboration is important for federal efforts that involve more than one agency. HHS, through AoA, has indicated that competing priorities for its limited resources prevent it from leading development of a cross-agency federal strategy. However, developing such a strategy could help ensure that the five agencies' resources for HCBS and supports are used efficiently and effectively.
Why GAO Did This Study
Research has shown that many older adults want to age in their homes and communities, and their ability to do so often depends on the availability of home and community-based services and other supports. GAO was asked to review the availability of such services.
This report addresses (1) federal programs that fund these services and supports for older adults, (2) how these services and supports are planned and delivered in selected localities, and (3) agencies' efforts to promote a coordinated federal system of these services and supports. GAO reviewed federal program documents and interviewed federal officials. It also visited programs in the Atlanta, Georgia region, Montgomery County, Maryland, and San Francisco California, chosen based on efforts made to enhance their system of HCBS and supports, recommendations from federal agencies and experts, varied governmental jurisdiction, and geographic dispersion.
What GAO Recommends
GAO recommends that HHS facilitate development of a cross agency federal strategy to ensure efficient and effective use of federal resources for HCBS. HHS concurred and HUD, DOT, and USDA did not comment.
For more information, contact Kay Brown at (202) 512-7215 or brownke@gao.gov.Wed, 20 May 2015 13:00:00 -0400Letter ReportRural Housing Service: Progress on GAO Recommendations and Preliminary Observations on Loan Guarantee Risk Management, May 19, 2015http://www.gao.gov/products/GAO-15-625T
What GAO Found
Overlap in housing assistance programs—particularly those of the Department of Agriculture's (USDA) Rural Housing Service (RHS) and the Department of Housing and Urban Development (HUD)—highlight opportunities for increased collaboration and consolidation. GAO's August 2012 report found overlap in the products offered and populations (income groups) and geographic areas served by RHS and HUD single-family mortgage guarantee programs. GAO also found selected multifamily housing programs served similar purposes. The report made three recommendations to RHS. RHS generally agreed with the recommendations and implemented one by formalizing collaborative efforts with other federal agencies on single-family housing programs. However, RHS and other federal housing agencies have not yet taken other recommended steps to build on interagency efforts—for example, by evaluating specific opportunities for consolidating similar housing programs, including those that would require statutory changes.
RHS generally agreed with and has addressed some of GAO's prior recommendations for the rental assistance and farm labor housing programs, but others require further attention. Specifically, RHS implemented three of the seven recommendations GAO made in May 2012 to enhance the agency's efforts to identify and reduce improper rental assistance payments. Additional steps are needed to implement the remaining recommendations, which address shortcomings in the way RHS estimates and reports on improper payments. RHS also addressed three of the seven recommendations GAO made in March 2011 on oversight of the farm labor housing program. Further actions are required to implement the other four, which address weaknesses in RHS controls for ensuring tenant eligibility, among other issues.
Ongoing GAO work indicates that aspects of RHS's risk management for the single-family mortgage guarantee program broadly align with federal requirements, while others are not fully consistent with requirements and leading practices. For example, RHS has policies and procedures for a number of risk- management functions addressed in Office of Management and Budget guidance (such as determining borrower creditworthiness and overseeing lenders). However, GAO's ongoing work indicates that, contrary to federal internal control standards, RHS does not have written policies and procedures for a committee responsible for evaluating credit quality issues and addressing them through policy changes. Also, certain benchmarks RHS uses to help assess the performance of its guaranteed portfolio have limitations that diminish their value for assessing risk and are not fully consistent with leading practices for successful performance measures. These shortcomings may limit the effectiveness of RHS's risk-management efforts.
Why GAO Did This Study
RHS, an agency within USDA, administers a number of direct loan, loan guarantee, and grant programs that support affordable housing and community development for rural residents. According to USDA financial and budget data, RHS manages a portfolio of almost $120 billion in housing loans and loan guarantees and administers more than $1 billion in rental assistance payments each year. GAO issued three reports since March 2011 on RHS housing assistance programs (see GAO-11-329, GAO-12-554, and GAO-12-624) and has ongoing work in this area.
This testimony is based on those three reports and ongoing GAO work. It discusses (1) prior GAO findings on the extent to which the housing programs of RHS and HUD overlap and related implications for program collaboration and consolidation; (2) the status of GAO recommendations on the rental housing assistance program and farm labor housing loan and grant program; and (3) preliminary observations from the ongoing review of risk-management practices for the single-family loan guarantee program. To update the status of recommendations, GAO reviewed RHS policies, procedures, and reports. For its ongoing work, GAO reviewed federal requirements and leading practices for risk management and compared them with RHS policies, procedures, and practices. GAO also interviewed RHS officials.
GAO makes no new recommendations in this testimony, but may consider making additional recommendations once its ongoing work is complete.
For more information, contact Mathew Scirè at (202) 512-8678 or sciremj@gao.gov.Tue, 19 May 2015 13:00:00 -0400TestimonyPersons with HIV: Funding Formula for Housing Assistance Could Be Better Targeted, and Performance Data Could Be Improved, April 16, 2015http://www.gao.gov/products/GAO-15-298
What GAO Found
The extent to which persons with human immunodeficiency virus (HIV) need housing assistance is not known, in part because the Department of Housing and Urban Development's (HUD) estimate of the housing needs of persons with HIV, including those with Acquired Immune Deficiency Syndrome (AIDS), is not reliable. HUD does not require Housing Opportunities for Persons with AIDS (HOPWA) grantees to use a consistent methodology to calculate unmet need. The agency has taken steps towards developing a standard methodology, but it has not established time frames for finalizing these efforts. GAO's work on assessing data reliability indicates that data should be consistent. Because HUD does not require grantees to use selected data sources in a consistent manner, the reported information on unmet housing needs of persons with HIV are not comparable across jurisdictions and are not useful and reliable. In addition, the statutory HOPWA funding formula is based on cumulative AIDS cases since 1981, including persons who have died, rather than on current numbers of persons living with HIV (including those with AIDS). This approach has led to areas with similar numbers of living HIV cases receiving different amounts of funding. Because HOPWA funds are awarded based on cumulative AIDS cases, these funds are not being targeted as effectively or equitably as they could be.
Agency data for HOPWA and the Health Resources and Services Administration's (HRSA) Ryan White program indicate most recipients of assistance obtained stable, permanent housing, but Ryan White housing data may have limitations. HRSA, within the Department of Health and Human Services, does not require Ryan White grantees to maintain current data on clients' housing status. However, it uses the data that grantees report to calculate the proportion of clients that have stable housing. HRSA is charged with tracking Ryan White clients' housing status as a part of the White House's National HIV/AIDS Strategy. Federal internal control standards state that events should be promptly recorded to maintain their relevance and value to management in controlling operations and making decisions. Because HRSA does not require grantees to maintain current data on clients' housing status, HRSA's data may be of limited usefulness in tracking the National HIV/AIDS Strategy goal of improving clients' housing status.
HUD and HRSA perform oversight activities but may be missing opportunities to use data to improve performance. HUD staff conduct risk-based monitoring of HOPWA grantees, and HRSA staff have improved monitoring of Ryan White grantees. HUD and HRSA both collect performance data from their grantees and take steps to ensure that the data are complete and submitted in a timely manner. HUD uses performance data to create summaries of program performance but does not have a specific process for comparing individual grantees' year-to-year data for unmet housing need. Federal internal control standards note the importance of such comparisons. By not analyzing these trends, HUD may not be identifying and addressing reporting problems. In addition, HRSA staff responsible for monitoring Ryan White grantees do not review grantee data on housing assistance provided. Federal internal control standards state that activities need to be established to monitor performance measures. By not focusing attention on housing data, HRSA staff with monitoring responsibility are not proactively using available resources to monitor individual grantees' contributions to the National HIV/AIDS Strategy goal of improving clients' housing status.
Why GAO Did This Study
Over 1.2 million people in the United States are estimated to have HIV, and about 50,000 new infections occur each year. Research has shown that persons with HIV who lack stable housing are less likely to adhere to HIV care. HUD's HOPWA program and HRSA's Ryan White program provide grants to localities that can be used to fund housing and supportive services specifically for persons with HIV.
GAO was mandated to review housing assistance for persons with HIV. This report addresses (1) the need for housing assistance for persons with HIV and the extent to which assistance reaches communities in need, (2) results achieved through HOPWA and Ryan White, and (3) federal oversight of these programs. For both programs, GAO analyzed program data on persons served and outcomes achieved as of 2012, reviewed policies, interviewed agency officials, and visited a non-generalizable sample of four geographically diverse cities that received varying amounts of both HOPWA and Ryan White funding.
What GAO Recommends
If Congress wishes HOPWA funding to be more effectively targeted, it should consider revising the funding formula to reflect the number of living persons with HIV. GAO also recommends that (1) HUD require a consistent methodology for estimating unmet housing needs and (2) both HUD and HRSA improve the reliability and use of performance data to manage their programs. HRSA agreed with GAO's recommendations. HUD agreed with the first recommendation but disagreed with the second, stating that it already assesses trends in some program data. GAO clarified that HUD should identify reporting issues by analyzing trends in its unmet housing need data.
For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.Thu, 16 Apr 2015 13:00:00 -0400Letter ReportData Use and Regulatory Status of the Indian Housing Block Grant Program, March 10, 2015http://www.gao.gov/products/GAO-15-353R
What GAO Found
Allocations for the Indian Housing Block Grant (IHBG) program, administered by the Department of Housing and Urban Development (HUD), are based on a funding formula that accounts for, among other things, housing stock (the costs of operating and modernizing HUD-funded housing units developed prior to the enactment of the Native American Housing Assistance and Self-Determination Act of 1996) and population counts and characteristics. Currently, HUD uses the 2000 decennial census and population service estimates (based on birth and death rate data) from the Indian Health Service to inform the population count and housing characteristics portion in the funding formula. In the event that a tribe believes that the 2000 decennial census does not accurately reflect the tribe's population, the tribe may challenge the census data and submit its own documentation, which must meet certain regulatory requirements. HUD officials told GAO that since 2004, HUD has received a total of 45 challenges to the 2000 decennial census, 15 of which have been successful and may have resulted in changes to the allocation. In June 2014, a negotiated rulemaking committee composed of tribal representatives and HUD officials established a study group to identify and evaluate alternative data sources that could replace the 2000 decennial census data. The study group intends to issue a final report containing a recommendation for a data source or sources to be used in the IHBG funding formula. The study group expects to submit this report to the negotiated rulemaking committee for consideration in July 2015. If the committee approves the study group's recommendation, it will submit the proposal to the Secretary of HUD for approval. According to HUD, if the Secretary approves the recommendation, it would then undergo a notice and comment period in the Federal Register before becoming a final rule.
Why GAO Did This Study
American Indian and Alaska Native populations (Native Americans) primarily receive federal assistance for low-income housing through the IHBG program. IHBG was established by the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA). To make funding allocations to tribal entities, the IHBG program has largely relied on the 2000 U.S. decennial census data, which included information on population counts, housing, and income characteristics. Recent changes in how census data are collected and whether the decennial census still serves as the best source of data have been discussed during recent negotiated rulemaking meetings--a collaborative process used by HUD staff and tribal representatives to develop regulations for the IHBG program.
GAO was asked to look at the data used for the allocation of funds for HUD's IHBG program. This product presents descriptive information addressing (1) factors that may affect the allocation of IHBG funds, (2) data used in the need component of the IHBG funding formula, and (3) activities of negotiated rulemaking associated with data used to allocate IHBG funds.
For more information, contact William B. Shear at (202) 512-8678 or shearw@gao.gov.
&nbsp;Thu, 09 Apr 2015 13:00:00 -0400CorrespondenceMilitary Base Realignments and Closures: Process for Reusing Property for Homeless Assistance Needs Improvements, March 16, 2015http://www.gao.gov/products/GAO-15-274
What GAO Found
A variety of homeless assistance was provided as a result of the 2005 round of base realignments and closures (BRAC), but the Departments of Defense (DOD) and Housing and Urban Development (HUD) do not require homeless assistance conveyance data to be tracked. Of the 125 large and small bases closed with surplus property, local redevelopment authorities (LRA) at 39 bases agreed to provide homeless assistance to 75 providers. If implemented, these agreements would provide nearly 50 parcels of property and over $29 million in total assistance. As of October 2014, GAO found that 27 of the 75 providers with agreements had received their property or monetary conveyances. However, DOD and HUD do not require tracking of the status of the homeless assistance conveyances. In contrast, the program administrator of the Title V homeless assistance program, which oversees conveyances for non-BRAC properties, developed policies to perform oversight in part because the government retains an interest in Title V properties. Without tracking the status of the conveyances, neither DOD nor HUD know the extent to which properties are actually being conveyed; the extent to which the providers are using the properties for their intended use; the extent to which LRAs are making sufficient efforts to find a replacement provider in the event of a provider dropping out; and ultimately the effectiveness of the homeless assistance program.
BRAC surplus property benefited homeless assistance efforts, but limited information and dedicated HUD resources contributed to challenges in the timeliness and feasibility of assistance provided. Homeless assistance providers GAO interviewed said that, among other things, the BRAC homeless assistance program provided the overall benefit of a no-cost property conveyance or financial assistance to support local homeless assistance efforts. However, LRAs and providers GAO interviewed also stated that they did not have sufficient and clear information from DOD and HUD regarding four steps of the homeless assistance process: (1) what information LRAs should give providers during property tours and workshops, (2) what information to include in providers' notices of interest about properties, (3) what information to include in developing legally binding agreements for conveying assistance, and (4) what alternatives are available to on-base property conveyances. For example, during required property tours and workshops, LRAs were unaware of what information to give and gave providers limited property condition information, which led to some providers withdrawing after they identified the cost of needed repairs. Without detailed information on these four steps, LRAs and providers may not have the knowledge necessary to make informed decisions. LRA officials also stated that they appreciated advice from HUD staff on the BRAC process. However, GAO found that HUD did not have enough resources dedicated to meet the 60-day review deadline in the BRAC statue for reviewing LRA redevelopment plans. According to HUD, two staff were assigned to review the plans, taking an average of 151 days longer than allowed to approve redevelopment plans with homeless assistance. However, HUD has not developed options to address reviewing the surge of plans in any future BRAC rounds. Without a means to ensure that needed staff resources are dedicated to HUD's review process, it will be difficult for HUD to provide reasonable assurance that the delays experienced during the BRAC 2005 round will not be repeated.
Why GAO Did This Study
The 2005 BRAC round resulted in 125 closed bases with over 73,000 acres of surplus property available. The Defense Base Closure and Realignment Act, as amended, requires DOD and HUD to assist communities in determining the best reuse of land and facilities, balancing needs of the local economy with those of homeless individuals and families.
GAO was mandated to review the extent to which DOD and HUD implemented the homeless assistance provisions while disposing of BRAC surplus property. This report addresses (1) the assistance provided as a result of BRAC 2005 and the extent to which DOD and HUD track its implementation and (2) any benefits and challenges encountered as DOD, HUD, and LRAs addressed homeless assistance provisions. GAO reviewed homeless assistance plans; interviewed DOD and HUD officials; and interviewed LRAs and homeless assistance providers from a nongeneralizable sample of 23 closed bases, selected based on size, geography, and types of assistance provided.
What GAO Recommends
GAO recommends that DOD and HUD track conveyance status and provide clear information on four steps of the homeless assistance process. HUD generally concurred, and DOD either partially concurred or did not concur with these recommendations, stating its existing guidance is sufficient. GAO believes these recommendations are still valid as discussed in the report. GAO also recommends that HUD address staff resources during a BRAC round, and HUD generally concurred.
For more information, contact Brian J. Lepore at (202) 512-4523 or leporeb@gao.gov.Mon, 16 Mar 2015 13:00:00 -0400Letter Report